A sale of $10,000 is made on account with a 2% discount if paid within 10 days. Provide the journal entry when the customer pays within the discount period using the gross method.

• A. Debit Cash 10,000; Debit Sales Discounts 0; Credit Accounts Receivable 10,000.
• B. Debit Cash 9,800; Debit Sales Discounts 200; Credit Accounts Receivable 10,000.
• C. Debit Cash 9,800; Credit Accounts Receivable 9,800; Credit Sales Discounts 200.
• D. Debit Cash 9,800; Debit Sales Discounts 200; Credit Accounts Receivable 10,000.

Answer: (D)

Under the gross method, you record the sale at its full amount and use a contra-revenue account to capture any discount taken. Here, the customer pays within 10 days, so the cash received is 9,800 (10,000 less 2% discount of 200). The proper journal entry debits Cash for 9,800, debits Sales Discounts for 200 (the discount as a reduction of revenue), and credits Accounts Receivable for 10,000 to remove the receivable from the books. The result reflects net sales of 9,800 and cash collection of 9,800, with the 200 discount shown as Sales Discounts. This is the correct treatment for the gross method.